Risk of market-based instruments in SBTi’s revised Corporate Net Zero Standard
After 2 years of revision, the Science Based Targets Initiative has released its Corporate Net Zero Standard 2.0, a framework aiming to guide companies to set their climate transition plan in line with the objectives of the Paris Agreement.
SBTi has reiterated the importance of the physical greenhouse gas (GHG) inventory but, at the same time, opened the door for the use of market-based instruments. The physical GHG inventory is where an organisation reports all its quantified direct emissions (Scope 1), indirect emissions (Scope 2 and Scope 3), and both short term and permanent removals.
ECOS is supportive of the elevated importance of direct emission reductions and maintaining the integrity of the physical GHG inventory. However, we caution SBTi on opening the door too far to market-based instruments. This risks SBTi’s own reputation and any organisation’s credibility claiming to be on a net zero pathway.
Key take aways:
• Maintaining the integrity of the GHG inventory. ECOS welcomes the requirement that market-based instruments need to be reported separately from the physical GHG inventory and cannot be used to claim emission reductions.
• Market-instruments risk disincentivising direct decarbonisation. Allowing organisations to use market-based interventions as a fall-back risk discouraging efforts to reduce an organisation’s own (value chain) emissions.
• Need for clear claim differentiation. When implementing the SBTi framework, we invite standard users to make a distinction between reduction claims based on physical emissions reductions on the one hand and system contribution claims based on market-based actions on the other. Such a distinction will mitigate the risk of misleading communications on progress.
• Feasibility criteria and integrity criteria need to be improved. Existing criteria leave room for interpretation. We urge SBTi to issue clear guidance on how companies and auditors should assess both.
• SBTi will prepare guidance on third party verification of market instruments. ECOS calls on SBTi to include stakeholders representing various interests in the development of such guidance to come up with actionable rules on the use of Chain of Custody models.
Learn more in our full response.
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